The Unemployment Tea Leaves

May 14

Reading The Unemployment Tea Leaves

Americans have long relied on unemployment statistics to provide insights to our country’s economic health. The Richmond Federal Reserve defined full employment as “the level of employment at which virtually anyone who wants to work can find employment at the prevailing wage.” Interestingly, full employment is not zero unemployment because jobs are being created and eliminated constantly.

Many analysts have been asking what full employment is today, in part, because the Federal Reserve has said it will begin raising short-term interest rates when the economy is nearing full employment (and inflation is about two percent). It may turn out to be a trick question. The Economist wrote:

“Although the number of jobless Americans has fallen, the share of the working-age population in the labor force has also dropped considerably, from 66 percent before the financial crisis to less than 63 percent now. Temporary factors have affected the statistics, but much of the change has been driven by structural factors such as retirement of the baby-boomer generation and rising college enrollment. These developments may explain why, as the unemployment rate has fallen from 10 percent in 2009 to 5.4 percent today, the Fed’s target long-run unemployment rate has also declined, from 6 percent in 2013 to just 5.2 percent at present.”

On Friday, the Labor Department announced the unemployment rate was 5.4 percent. However, there is some skepticism about whether the American labor market really is close to full capacity. Experts cited by The Economist suggest a stronger jobs market might coax more people into the workplace. By their estimates, America’s true unemployment rate is about 6.6 percent.

The Economist suggested labor market slack is one reason average hourly earnings have remained sluggish. Many thought low oil prices would push consumer spending higher. They did not. It looks like bad weather and stagnant wages may be behind lethargic economic growth.

Weekly Focus – Think About It

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”

Jonathan K. DeYoe is the president of DeYoe Wealth Management in Berkeley, CA, the author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend, and the founder of Happiness Dividend. Happiness Dividend is a blog offering educational content and tools. The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which financial choices and which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Financial Planning and Investment Advice are offered through DeYoe Wealth Management, Inc., a registered investment advisor doing business as Happiness Dividend. All performance referenced anywhere on this website is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Original content written by Jonathan K. DeYoe, Carson Group Coaching, and Broadridge Advisor Solutions (copyright 2017). The Happiness Dividend crew selects and edits all content with permission and care before you see it here. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.Disclosures